Morning Report – Waiting on the Fed 9/17/14

Posted on September 17, 2014 by Brent Nyitray

Markets are flat this morning as we await the Fed’s decision at 2:00 pm. Bonds and MBS are up.

The FOMC decision should be out by 2:00 pm EST. I suspect any surprises will be in the press conference, not the actual release.

The NAHB Homebuilder Sentiment Index rose to a post-bubble high.

Mortgage Applications rebounded 7.9% last week after printing the lowest level since 2001 in the prior holiday-shortened week. Purchases rose 4.8%, while refis increased 10.3%. Interestingly, MBA is reporting the average 30 year fixed rate mortgage rate increased to 4.36% after having been stuck in a 4.25% – 4.30% range all summer. Mortgage rates didn’t really follow bond yields lower ahead of the ECB announcement, but now they are heading higher along with bonds. This could be evidence of (a) capacity having been wrung out of the system, or (b) bankers making loans that they wouldn’t have made a year ago, which carry higher rates.

Inflation at the consumer level remains muted. The consumer price index fell .2% in August as gas prices decreased. Ex-food and energy, it was flat. Certainly not seeing much evidence of inflation.

Lennar reported good numbers, with a 23% jump in new orders, a 29% increase in backlog, Average Selling Prices rose 14% to $332,000. Lennar was one of the few companies that reported increases in deliveries – most had been showing drops in deliveries offset by an increase in ASPs. The stock is up a couple of bucks pre-open.

Good news for builders like Lennar, Pulte, and D.R. Horton who have exposure to the entry-level buyer – the Millennial generation is moving out of Mom and Dad’s basement. This has all sorts of implications for the housing market – they will be the demand for rentals and also for starter homes. We have underbuilt since the bust and demand is starting to come back. Of course we have a long way to go to get to normalcy, but at least we are headed in the right direction. Note the Wells survey from yesterday – many might actually be interested in buying, but they believe (wrongly) that a 20% downpayment and perfect credit is mandatory to get a loan. Education about FHA loans is key.

HUD secretary Julian Castro spoke at the Bipartisan Policy Center 2014 Housing Summit. Here are his prepared remarks. Obviously access to credit is a big concern on the part of HUD, and they are trying to address it by clarifying rules and regulation and putting them in a single resource – the Single Family Handbook, which will address loan defects and how serious they are. Second, they are rolling out a program designed to counsel first time homebuyers, rewarding them with a MI break if they go through the program. I do wonder how much improved access we are going to get with the barrage of lawsuits continuing.

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10 Responses

  1. jnc4p, on September 17, 2014 at 11:17 am said:

    Ezra Klein vs Thomas Frank is amusing.

    “How political science conquered Washington”
    http://www.vox.com/2014/9/2/6088485/how-political-science-conquered-washington

    “All these effing geniuses: Ezra Klein, expert-driven journalism, and the phony Washington consensus ”
    http://www.salon.com/2014/09/14/all_these_effing_geniuses_ezra_klein_expert_driven_journalism_and_the_phony_washington_consensus/

    “Area pundit angry at political science for proving him wrong”
    http://www.vox.com/2014/9/17/6291859/area-pundit-angry-at-political-science-for-proving-him-wrong

    I do think Ezra finally starts to get it in this piece though:

    “The cleanest way to shrink the size of government is to repeal laws and regulations. But it doesn’t happen very often. In the American political system, Grossmann says, “it’s hard to pass anything, but it’s particularly hard to repeal a law that already exists.” Systematic analyses show it’s rare for laws to be repealed wholesale. “That creates perpetual disappointment among the Republican base,” Grossmann continues. “They correctly perceive that their party does not succeed in enacting their professed ideology.”

    As such, gridlock is often the best small-government conservatives can hope for. And so they’re more comfortable with it than Democrats.”

    http://www.vox.com/2014/9/15/6131919/democrats-and-republicans-really-are-different

    The title is misleading. It’s not about lack of understanding, it’s about not wanting the same things.

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    • markinaustin, on September 17, 2014 at 11:29 am said:

      In the 70s, one of my law partners and I did a little newsletter we titled “REPEAL”. We began by publishing blatantly stupid laws, like the one treating the shoplifting of meat as cattle rustling. We suggested our clients and friends do letter writing campaigns, or if they knew a lawyer [hmmm], hire him to lobby for the repeal. We kept it up for awhile, but it never got us any new business and it never got a statute repealed.

      NoVA, you could do this at the fed level. I think it would still work to start with blatantly stupid little laws, which should be easy to find. Then you can move up to laws some people might see as sacred cows, after you have had success on little shit.

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  2. lmsinca, on September 17, 2014 at 2:40 pm said:

    Just thought I’d drop by and let y’all know that it was 111 in Riverside yesterday and our warehouse is baking. Anyway, once the workday is over (and we’ve been super busy since we came back packing orders etc.)……………I’m all tapped out and no interest or energy in reading or commenting. I’ll see y’all when business slows down and the weather gets a little cooler…………….. 😉

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  4. jnc4p, on September 17, 2014 at 3:45 pm said:

    Sorry it’s so hot there lmsinca. East coast is already getting early fall cool. It’s been a cooler than usual summer here overall.

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  5. lmsinca, on September 17, 2014 at 5:42 pm said:

    It snowed at the higher elevations in CO while we were there and we’ve had a mild summer here until now. It always hits at some point, if not August, then September.

    In the pool every day Mark.

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  6. lmsinca, on September 18, 2014 at 7:55 am said:

    Take care of yourself Scott!

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  7. jnc4p, on September 18, 2014 at 10:33 am said:

    Hopefully something fun and/or profitable.

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